Blackout of Project Finance?

Abstract

Will the recent Blackout be the Three Mile Island of the project finance of deregulated electrical assets or the genesis of new opportunities? The answer to this question is complex. Despite the clearly identified need for enhanced transmission facilities, growth of the transmission structured and project finance market will depend largely on satisfactory reform of the regulatory environment. Despite a possible perceived need for supply redundancy, enhanced use of project finance for generation also will depend on regulatory reform. Distributed generation (DG) could receive an impetus from the Blackout, but targeted public policy may be needed to support DG project finance. Unless the Blackout is taken as a signal to nationally modify the “business as usual” profile of the U.S. power industry, which has resulted at best in benign neglect and a confusingly hybrid regulatory system, it will do little or nothing to affect the prospects for merchant generation, may not lead to the highly accelerated use of project and structured finance to facilitate transmission and distribution, and could presage a period of delay, both before and after regulatory issues are worked out fully.